Swedish Covenant Hospital to buy out surgery center partners

Swedish Covenant Hospital has agreed to pay $1.4 million to buy out its partners in a fledgling, money-losing surgery center.

The Northwest Side hospital would acquire the 46 percent stake it doesn't already own in the Center for Ambulatory Surgery at Swedish Covenant, which has failed to meet financial expectations since it opened 10 months ago.

The sellers are Regent Surgical Health LLC, a Westchester-based developer of surgery centers, which has a 10 percent stake, and a group of doctors affiliated with the center, which owns 36 percent.

Swedish plans to boost revenue by shifting the patients from the hospital to the center, which has been primarily used for less profitable treatments, such as pain management, according to a July 8 application filed with the Illinois Health Facilities and Services Review Board, which must approve the sale.

The transaction would also allow Swedish to convert the surgery center, which is housed in the hospital's new $49.5 million medical office building at 5215 N. California Ave., into an outpatient department of the hospital.

Hospital acquisitions of surgical centers are happening more frequently because of differences in Medicare rates, said Mark Mayo, executive director of the Ambulatory Surgery Center Association of Illinois in Round Lake.

The federal health care program for the elderly pays surgery centers about 58 percent of what it pays a hospital outpatient department for the same procedure, according to a report published by the Alexandria, Va.-based Ambulatory Surgery Center Association.

Such ownership changes go back on a central premise of privately owned surgery centers — that they are cheaper than hospitals.

“So you open the door by being a lower-cost alternative, and then you switch to a higher cost option? Is that not bait-and-switch?” Mr. Mayo said.

A spokeswoman for Swedish declined to answer questions about the change in ownership but provided a statement saying the hospital is preparing for aspects of the Obama administration's health care law.

“As we plan for reimbursement around patient outcomes, this structure allows us to have more control over expenses, staffing and resources needed to provide high-quality and efficient outpatient surgical care in a changing health care reimbursement environment,” she said in the statement. “We expect that outpatient services will grow at a faster rate under health care reform.”

Of the $1.4 million that Swedish is paying, only about $587,000 is going to the minority partners. The transaction costs are expected to total $150,000. The remaining portion, about $850,000, is going to pay the center's debts and expenses.

A spokesman for Regent declined to comment.

Although the surgery center has achieved the projected volume of patients, more than two-thirds of the cases are pain management or ophthalmology, the application says.

“The surgery center is forecasted to operate at a loss of more than $625,000 per year for the foreseeable future,” the application says.

Meanwhile, each of the hospital's seven operating rooms is used about 2,100 hours per year, the application says. That's about 40 percent more than the 1,500 hours a year suggested by state guidelines. Turning the surgery center into an outpatient surgery department would allow cases to be “more rationally scheduled” between the two facilities.

The transaction would close no later than Dec. 31, the application says.